Property Law in Spain

General Principles of Spanish Property Law

Spanish property law is governed by the Spanish Civil Code (Código Civil) and other bodies of law such as the Ley de Suelo (Land Law). These laws regulate the conditions for acquiring property, the rights and obligations of proprietors, and the respective tax responsibilities.

How does a Property Purchase Agreement Become Legally Binding?

In Spain, property purchase agreements are not subject to any formal requirements. This means that any oral or written agreement on property in question, its purchase price, and transfer of property between the buyer and seller is legally valid. Nonetheless, one is highly advised to conclude a written contract for purposes of proof. Additionally, for the property to be registered in the Land Registry, the written contract must be notarised.

Purchasing a Property

To purchase a property in Spain, the buyer must complete several steps:

• Preliminary Contract: Often, a private preliminary contract (Contrato de Arras) is drafted, which presupposes a down payment.
• Notarial Deed: The final purchase contract is signed in the presence of a notary.
• Registration: After notarisation, the purchase must be registered in the Land Registry (Registro de la Propiedad) so as to secure ownership rights against third parties.

What documents should a buyer review before signing the purchase contract?

• Current Land Registry Extract: This document allows to verify that the seller is the legal proprietor, and that the property is unencumbered.
• Current Cadastral Extract: This document allows to check the accuracy of the seller’s reported property specifications (e.g., size, location, boundaries, and buildability).
• Valid Occupancy Certificate: This document confirms that the building is suitable for residential use.
• Development Plans and Usage Regulations: These serve to ensure the property development and use are admissible according to applicable regulations.
• Energy Certificate
• Liability Certificate relating to the Homeowners’ Association: If the property is commonly owned by multiple proprietors, the seller should provide a certified statement of all outstanding debts to the other proprietors. Otherwise, the new owner might be liable for settling outstanding debts.

Taxes and Levies

Various taxes apply when property is purchasing, including the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales) for resale properties and VAT (IVA) for new constructions. The seller must pay capital gains tax (based on the difference between the purchase and sale price), also known as the profit tax. In addition, a municipal capital gains tax (Plusvalía Municipal) is levied. The seller can choose between two calculation methods:  the property value may either be based on cadastral value or on actual value increase.

Special Regulations on the Balearic Islands

Tax Identification Number

To be able to purchase property on the Balearic Islands, aliens must possess a tax identification number, known as the N.I.E. (Número de Identificación de Extranjero), which is required for all tax and legal transactions.

Environmental and Coastal Protection

The Balearic Islands impose strict regulations relating to environmental and coastal protection. Construction projects near the coast or in nature reserves are subject to special requirements, and obtaining permits can be time-consuming.

Inheritance and Gift Tax

The Balearic Islands offer specific tax reliefs on inheritance and gift taxes, which can significantly reduce the tax burden on heirs and recipients.

Special Regulations on the Canary Islands

Regional Legislation

As an autonomous community, the Canary Islands have their own legislative powers, which entitles them to enforce special regulations, particularly in regard to construction and planning law, as well as environmental and landscape protection.

Tax Particularities

One of the most notable differences concerns tax treatment. The Canary Islands have a reduced VAT rate (IGIC – Impuesto General Indirecto Canario), which is lower than the national VAT (IVA). This can alleviate the load of additional costs associated with property purchases.

Inheritance and Gift Tax

The Canary Islands also provide tax reliefs on inheritance and gift taxes, which often leads to more favourable treatment for heirs and beneficiaries than under the general rules which apply on the Spanish mainland.

Legal Framework and Market Specifics

The property market on the Canary and Balearic Islands is to a large degree shaped by the tourism industry, leading to high demand for holiday homes, which can inflate prices in popular areas. Construction projects are strictly regulated, and obtaining permits can be complex and time-consuming.

Att. Prof.* Dr. Stephan J. Lang

Svetlana Evgrafova